More about “Government Sachs” (They Own America; We Just Live Here)

Few things so powerfully illustrate the cowardly passivity of modern Americans than the lack of response to the news about Goldman Sachs. It’s OK to get angry, America!

Here are some of the major volleys to date in this emerging story. Of course, few signs of this surface in the mainstream media – journalists dying a just and well-deserved death for their failure to cover the new important to America. the poor fools relying on them for information are the last to know anything of importance.

“The Great American Bubble Machine“, Matt Taibbi, Rolling Stone, 2 July 2009 — From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression – and they’re about to do it again

Today, the sheer volume of irresponsible media commentary has forced us to reconsider our public-relations strategy. With every uptick in our share price it’s grown clearer that we who are inside Goldman Sachs must open a dialogue with you who are not. Not for our benefit, but for yours.

America stands at a crossroads, and Goldman Sachs now owns both of them. In choosing which road to take, ordinary Americans must not be distracted by unproductive resentment toward the toll-takers. To that end we at Goldman Sachs would like to dispel several false and insidious rumors.

Rumor No. 1: “Goldman Sachs controls the U.S. government.”

Every time we hear the phrase “the United States of Goldman Sachs” we shake our heads in wonder. Every ninth-grader knows that the U.S. government consists of three branches. Goldman owns just one of these outright; the second we simply rent, and the third we have no interest in at all. (Note there isn’t a single former Goldman employee on the Supreme Court.)

Of course, it will take a lot more than that to truly dampen Goldman’s influence in Washington. As financial writer Michael Lewis recently said, the Obama administration, led by Geithner and the White House’s National Economic Council director, Larry Summers, continues to operate from an economic worldview shaped by people who believe that the world can’t function without Goldman Sachs. Goldman also has a key ally in Obama’s chief of staff, Rahm Emanuel, a former investment banker and onetime adviser to Goldman Sachs who frequently solicited campaign funds from the firm while working with the Clintons. And in mid-July, the week Goldman Sachs announced its massive second-quarter profits, the administration quietly hired Robert Hormats, another Goldman executive, as an economic adviser to Secretary of State Hillary Clinton.

Ultimately, Goldman Sachs probably still has the nod and the wink it needs to continue to rake in profits with impunity. And even if tighter regulations do pinch the firm, it has a long history of figuring out how to prevail in any regulatory environment. If [you] looked at the history of regulatory changes that have happened,� says Rogers, they’ve improved the markets by and large, and Goldman Sachs actually benefited historically from all those changes.

The idea that things might just go back to the way they’ve always been on Wall Street is, of course, infuriating to those who had hoped the financial meltdown would be an opportunity for reform. A few days after Goldman reported its second-quarter profits, Eliot Spitzer, a critic of the AIG bailout, tells me: If all we are getting are newly empowered and capital-rich hedge funds that benefit from market volatility, then we are not only rebuilding the same edifice, but we’re contributing to the underlying rot in our economy.

Well, here’s something amazing. It’s like protocapitalist buddhism: the endless life-cycle continues. Clinton’s SEC chairman, the man who powdered his nose and fondled himself for years and years while companies like Goldman Sachs bilked America with one “Bullshit.com” IPO after another, is now going to work for… wait for it… Goldman, Sachs. Nothing like years of hideously ineffectual non-enforcement to attract those lucrative Wall Street job offers!

Anyone else out there find himself doubled over laughing after reading Goldman, Sachs chief Lloyd Blankfein’s “apology” for his bank’s behavior leading up to the financial crisis? Has an act of contrition ever in history been more worthless and insincere? Even Gary Ridgway did a better job of sounding genuinely sorry at his sentencing hearing — and he was a guy who had sex with dead prostitutes because it was cheaper than paying live ones.

After watching its thoroughly maladroit handling of several p.r. problems this week, I’m absolutely convinced that Goldman Sachs can be hurt if enough people keep piling on with the pressure. The latest evidence of this is its abject collapse in the face of questions from Zero Hedge about the possibility that it is using the data its takes from users of its website to front-run those same people.

This is a great example of how a story that’s primarily about Goldman and Morgan Stanley manages never to mention them by name. The Post leaves out a lot of details in this piece. Among other things, they describe this new plan by the CFTC to place restrictions on speculative commodities trades as an idea that came from new CFTC commissioner Gary Gensler, who of course is a former Goldman banker and was a key aide to Bob Rubin back when the two of them were in the Treasury in the late 1990s and pushing for the deregulation of derivatives.

It’s been interesting, to say the least, watching the public reaction to my Rolling Stone piece last week.

… Then there is this other argument, the one being bandied about by Time magazine, among others. According to Steven Gandel of Time, the problem with my piece is that it is — get this — too specific. … focusing on Goldman in particular when attempting to explain (in general) the crimes of Wall Street to ordinary readers is somehow a distraction from the “real problem.” {From Time magazine:}

…spend too much time on Goldman and you miss the fact of how broadly the financial system and the regulations that are supposed to keep profiteers in check failed us.

I had to read that passage several times to even begin to grasp its ostensible meaning. Apparently this is the best argument that Time could come up with to discredit this article, that the rhetorical technique of using a specific example of a specific bank like Goldman to tell a broader story about Wall Street in general distracts readers from the “more important” issue of how government regulators… failed to stop banks like Goldman! I mean, really, how’s that for circular thinking? This is silly stuff even by Time magazine’s standards.

I’ve been shocked by how many grown adult people seem to have swallowed this argument, that the argument against Goldman’s behavior during the bubbles of recent decades is invalid because “everyone was doing it” — and other banks, like for instance Morgan Stanley, were “just as bad” as Goldman was.

{I}f you’ve followed Zero Hedge’s speculations dating back months about Goldman somehow manipulating program trading at the NYSE, this is connected to that, as the theory here is that Aleynikov stole the computer program that Goldman may have been using to manipulate the NYSE.

Such speculations until recently may have sounded like conspiracy theories, but then last week Assistant U.S. Attorney Joseph Facciponti stood up in court and let loose a whopper. “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” he said.

Again, this is a federal prosecutor quoting Goldman Sachs, admitting in open court that it has been using a computer program that can be used to unfairly manipulate markets. Take that information and couple it with the insane data about Goldman’s share of program trading volume since the beginning of the year and… well, you can draw your own conclusions.

So what’s wrong with Goldman posting $3.44 billion in second-quarter profits, what’s wrong with the company so far earmarking $11.4 billion in compensation for its employees? What’s wrong is that this is not free-market earnings but an almost pure state subsidy.

… these guys on Wall Street causesd this crisis, and now they’re raking in money on the infrastructure their buddies in government have devised to bail them out. It’s a self-fulfilling cycle — beautiful, in a way, but at the same time sort of uniquely disgusting. That they’re going to get away with it is bad enough — that they’re getting praised for it, for being such smart guys, is damn near intolerable.

A lot of people have remarked upon Goldman’s extraordinary VaR levels during this whole year, and in particular recently — the bank actually set a record the other day when its VaR rose to $245 million. VaR measures the amount of money the firm could lose in a day’s trading, and is the standard measure of a company’s risk appetite. Goldman’s is and has been extremely high, in particular lately, suggesting one of several possibilities. One, it is emboldened by its vast array of state safety nets to take bigger chances in the equity markets. Two, it isn’t really taking chances, and I think I’ll leave the explanation of that possibility basically at that.

Joe Hagan’s new piece in New York magazine brings out a lot of excellent new information, but the most interesting from my point of view is his insight about the period after the AIG bailout and before the announcement of the new FDIC lending program. It seems things were worse than even I thought at the bank, with then-COO John Winkelreid putting up his Nantucket house for sale in order to raise quick cash and management discussing taking the company private to avoid catastrophe.

Hagan describes a bank that was in crisis, its share price plummeting to $47, one that was really rescued by the FDIC program, which made bank holding companies (which Goldman had just become, thanks to a hurried conversion) eligible for billions in government-backed lending.

Originally published at Fabius Maximus and reproduced here with the author’s permission.

2 Responses to "More about “Government Sachs” (They Own America; We Just Live Here)"

Guest August 2, 2009 at 11:56 pm

Great Reminder, Thank You!

Guest August 7, 2009 at 9:32 am

I’m not a “banker” or related in any way to the investment community. I don’t have any vested interest in Goldman Sachs or any banking activity. After reading all this I still don’t understand what is their fault. What are they guilty of? Making money? Are they violating the law? If yes, prosecute them. If not, the approach of demonizing them is wrong. Let’s understand why those things happen and have better regulations. I think it is a more constructive approach that almost wishing to see Goldman Sach disappear.